The Role of CFS in Improvement and Implementations of Margin Financing in KSE

Abstract

The purpose for conducting this study is to know about CFS in detail and to know why COT Carry-Over Transaction (COT)/ Badla Financing system was phased out to implement margin financing in Karachi Stock Exchange. Some basic difference between these two systems are explain in detail, why the speculators were facing some bitter and long drawn controversies in COT and how SECP implement changes and improvements in margin financing to make the system more secure. CFS session would run parallel to Ready market while COT session took place after Ready market. Market wide exposure was limited in CFS. Exposure of a brokerage house in CFS was also reduced and more. In July 2004, SECP announced the schedule of badla financing phase out. In initially stages, those companies have low volume were phased out. From 2005, large volume companies were started phasing out. Its main objective is to explore the causes due to which Carry-over transaction was phased out. To highlight problems, which occur after the implementation of Continuous Funding System and Ongoing market trends? And it concluded that CFS is the pathway towards the margin financing in Pakistan and it was introduced because of lack of awareness of margin financing among the investors, brokers and bankers. It resolves the deadlock created by the replacement of Badla with the Margin Financing. The CFS will serve as a transitional tool to facilitate the development and availability of alternative modes of financing, including margin financing and derivatives.